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Brussels, 24 July 2007

VAT – Postal Services: Commission opens second stage of infringement proceedings against the United Kingdom, Germany and Sweden

The European Commission has formally requested the United Kingdom, Germany and Sweden to change their legislation on the VAT exemption for postal services which are not compatible with the VAT Directive. The United Kingdom and Germany exempt from VAT all or most postal services supplied by their former postal monopolies. Sweden does not exempt postal services. The requests take the form of a reasoned opinion (second step of the infringement procedure provided for in article 226 of the EC Treaty). If the relevant national legislations are not amended in order to comply with the reasoned opinions, the Commission may decide to refer the matter to the European Court of Justice.

"The European Commission as guardian of the EC Treaties is obliged to ensure that EU rules are applied in a harmonised manner across the Community" said László Kovács, European Commissioner for taxation and customs. "The VAT exemption for postal services is still part of Community rules and should be applied in a way that minimizes distortions of competition between former monopolies and market entrants so as to ensure that all operators enjoy the freedom to provide postal services across Europe".

In taking this action, the Commission is responding to a number of complaints it has received. It is aware that these three Member States are not the only ones where similar problems exist and regards these as test cases which show in stark relief the devastating effects non-harmonised application of VAT rules has for the internal market. In April 2006, the Commission sent letters of formal notice to these Member States (IP/06/484). However, their replies were not satisfactory.

An Internal Market for postal services

Directive 97/67/EC "the postal directive" established the rules governing the internal market in the postal sector. Existing postal monopolies were severely restricted (and are in the process of disappearing) and rules ensuring the provision of an affordable, high quality service to all -the universal postal service- were laid down. National independent regulatory authorities were put in place to ensure both the provision of the universal service and fair competition between former monopolies and market entrants.

The VAT postal exemption as applied in the UK and Germany hinders competition

Perhaps the single most important obstacle to achieve effective competition in this sector is the VAT exemption as applied in several Member States. In transposing article 132 of the VAT Directive[1] (which exempts supplies by "the public postal services"), those Member States have exempted from VAT all (the UK) or most (Germany) postal services provided by their former postal monopolies. They do so on the grounds that those operators have been assigned particular obligations with regards to the provision of the universal postal service. Other postal operators are required to charge VAT on their services.

Paradoxically, some of the operators (former monopolies) who benefit from this tax advantage at home are now expanding across Europe and facing and complaining about unequal tax treatment in these new markets.

The Commission is arguing that in the context of competitive postal markets, different tax liabilities are bound to distort competition and can only be justified as regards the strict discharge of the universal service obligation. Where for commercial reasons – namely to fend off competition from other operators – former monopolies offer to some high volume clients pricing and quality conditions which are not available to the general public, their supplies should be subject to the same tax liability as their competitors.

Sweden does not apply the VAT postal exemption

Contrary to the United Kingdom and Germany, Sweden does not exempt postal services. All operators including the one entrusted with the provision of the universal service - Posten AB - must charge VAT for all services. While in so doing Sweden has ensured that VAT does not distort competition, it has nevertheless failed to apply an exemption which remains in Community legislation and must be applied in a harmonised manner across the Community.

The European Commission calls for a modernisation of VAT rules in this sector

The Commission calls upon the Council to resume discussion on its 2003 legislative proposal concerning VAT on post (see IP/03/633 and MEMO/03/98). While a common interpretation of existing rules is needed, the Commission still believes that VAT rules dating from the 70s must be amended to keep in step with the European postal market of the new century.

The Commission's case reference numbers are 2006/2046 (Sweden), 2006/2047 (UK) and 2006/2048 (Germany).
For the press releases issued on infringement procedures in the taxation or customs area see:
For the latest general information on infringement measures against Member States see:

[1] Formerly article 13 of Directive 77/388/EEC "the Sixth VAT Directive".

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